President Joe Biden called on Congress to present regulators more authority to claw back pay and penalize executives at distressed banks “whose mismanagement contributed to their institutions failing.”
“Nobody is above the law – and strengthening accountability is a very important deterrent to stop mismanagement in the longer term,” Biden said in a press release Friday, days after federal bank regulators stepped in to ensure deposits at two banks that failed over the weekend. “When banks fail attributable to mismanagement and excessive risk taking, it ought to be easier for regulators to claw back compensation from executives, to impose civil penalties, and to ban executives from working within the banking industry again.”
Biden noted his powers to carry executives accountable were constrained by the law and asked Congress step in.
“Congress must act to impose tougher penalties for senior bank executives whose mismanagement contributed to their institutions failing,” Biden said.
The president is asking Congress to broaden the Federal Deposit Insurance Corporation’s ability to claw back compensation, including from the sale of stocks, from executives at failed banks. The White House said SVB’s CEO reportedly sold greater than $3 million in shares mere days before the FDIC took it over. Under current Dodd-Frank laws, the FDIC only has the power to recoup these funds on the nation’s largest financial institutions, not large and medium sized banks just like the ones that failed over the weekend.
Biden also called on Congress to expand the FDIC’s authority to bar executives whose banks are under receivership from working within the banking sector and convey fines against executives of failed banks. All three of the White House’s proposals seek to penalize banking executives for the dangerous behaviors leading as much as the bank failures.
The nation’s top bank regulators on Sunday announced the FDIC and Federal Reserve would fully cover deposits, including those above the $250,000 limit covered by traditional FDIC insurance, at each failed banks: Silicon Valley Bank and Signature Bank. The agencies noted that Wall Street and enormous financial institutions — not taxpayers — to foot the bill through a special fee assessed against federally insured lenders.
A majority of SVB’s customers were small tech corporations, enterprise capital firms and entrepreneurs who used the bank for day-to-day money management to run their businesses. Those customers had $175 billion on deposit with tens of thousands and thousands in individual accounts. That left SVB with certainly one of the very best share of uninsured deposits within the country when it collapsed, with 94% of its deposits landing above the FDIC’s $250,000 insurance limit, in response to S&P Global Market Intelligence data from 2022.
The SVB failure was the nation’s largest collapse of a financial institution since Washington Mutual went under in 2008. Signature Bank in Latest York, which was shuttered Sunday over similar fears its failure could pull other institutions down with it, had been a well-liked funding source for cryptocurrency corporations.
The Federal Reserve also loosened its borrowing guidelines for banks looking for short-term funding through its so-called discount window. It also arrange a separate unlimited facility to supply one-year loans under looser terms than usual to shore up troubled banks facing a surge in money withdrawals. Each programs are being paid for through industry fees, not by taxpayers.
The president stressed the actions taken over the weekend were essential to stop further economic fallout but didn’t use taxpayer funds.
“Our banking system is more resilient and stable today due to actions we took,” Biden said. “On Monday morning, I told the American people and American businesses that they need to feel confident that their deposits will probably be there if and after they need them. That continues to be the case.”
Treasury Secretary Janet Yellen took questions from members of the Senate Banking Committee on Thursday in regards to the moves taken thus far to contain the damage. She stated not all depositors will probably be protected over the FDIC insurance limits of $250,000 per account as they did for purchasers of the 2 failed banks.
Members of Congress are currently weighing various legislative proposals intended to stop the subsequent Silicon Valley Bank-type failure.
One among these is a rise within the $250,000 FDIC insurance limit, which several senior Democratic lawmakers have called for within the wake of SVB’s collapse. Following the 2008 financial crisis, Congress raised the FDIC limit from $100,000 to $250,000, and approved a plan under which big banks contribute more to the insurance fund than smaller lenders.
Just like the White House, Congress has limited power as to what it may well do to punish individual executives of failing banks, because courts are the venue where the law imposes penalties on those found guilty of wrongdoing.
A bill has already been introduced within the Senate, in response to the SVB collapse, that seeks to claw back two types of compensation from top executives at failed banks: Bonuses and profits from stock sales.
On Tuesday, Sen. Richard Blumenthal, D-Conn. introduced a bill, S. 800, that may amend the IRS rules to impose a better tax rate on bonuses and profits from selling stock options for executives at banks which were taken over by the FDIC.
By Friday morning, the bill had picked up one influential co-sponsor: Sen. Kyrsten Sinema, I-Ariz. As a swing vote throughout the Democratic caucus, Sinema’s support is seen as necessary in getting any bill within the Senate passed if Republicans oppose it.